Week 2 reading Accounting

The first closing journal entry would include which of the following?

A credit to Income Summary for $6,000.

A company borrowed $4,000 from the bank at an interest rate of 9%. By the end of the accounting period, the loan had been outstanding for 30 days. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Interest expense for $30.

A company using a calendar year-end will record an adjusting entry for a bill received on January 15 for services received during the month of December on:

December 31

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

Insurance expense would be debited for $300.

Which of the following accounts would be considered a prepaid expense or prepaid asset account? (Check all that apply.)

Supplies Prepaid rent Prepaid insurance

All of the following are types of adjustments except:

accrued cash

Accrued are earned in a period that are both unrecorded and not yet received in cash.

revenue

Cash basis accounting recognizes (equity/revenues/expenses) when cash is received and records (revenues/expenses/liabilities) when cash is paid.

revenues expenses

A $300,000 building was purchased on December 1. It is estimated that it will have a life of 20 years and zero salvage value. Calculate depreciation expense for the month of December using straight-line depreciation.

$1,250

A business has a $5,000 loan from a bank at 16% annual interest. Calculate the amount of interest to accrue if the loan has been outstanding for 90 days. Use a 360 day year.

200

What is the effect of an accrued expense (such as salaries expense) adjustment on the income statement and the balance sheet? (Check all that apply.)

A liability (such as salaries payable) will be increased. Expenses are increased. Net income is reduced.

On December 27, a business completed a $400 service that had not yet been billed or recorded as of December 31. Demonstrate the required adjusting entry of the business by completing the following sentence. The required adjusting entry would be to debit the (Unearned revenue/Accounts receivable/Cash/Service revenue) account and (debit/credit) the (Unearned revenue/Accounts receivable/Cash/Service revenue) account.

Accounts receivable credit Service revenue

The Income Summary account can be defined as which of the following? (Check all that apply.)

An account used during the closing process An account that contains a credit for the sum of all revenues A temporary account An account whose balance equals net income or net loss

Demonstrate your knowledge of preparing an adjusted trial balance by selecting the correct statement below.

An adjusted trial balance is prepared after adjustments are posted, so new accounts may need to be added.

Describe the effect of an accrued revenue adjustment on the income statement and the balance sheet by choosing from the statements below. (Check all that apply.)

An asset will be increased. Total assets will be increased. Net income is increased. A revenue account will be increased.

What is the book value of an asset?

Book value is the original cost of an asset minus its accumulated depreciation.

Which of the accounts below would be classified as long-term or fixed assets? (Check all that apply.)

Building Vehicles Equipment Land

Which of the following lists of assets would be classified as plant assets?

Buildings, Machines

Choose the statement(s) below which is (are) true regarding adjusting journal entries. (Check all that apply.)

Cash is never affected. A balance sheet account is always affected. An income statement account is always affected.

At the end of the previous year, a customer owed Chocolates R US $500. On January 31 of the current year, the customer paid $900 total, which included the $500 owed plus $400 owed for the current month of January. What would be the journal entry on January 31 that reflects this? (Check all that apply.)

Cash will be debited for $900. Service revenue would be credited for $400. Accounts receivable will be credited for $500.

McDarrel's records $500 of accrued salaries on December 31. Three days later, on January 3, total salaries of $4,000 (including the $500 accrued at year end) are paid. Demonstrate the required journal entry on January 3 by selecting from the choices below. (Check all that apply.)

Cash would be credited for $4,000. Salaries expense would be debited for $3,500. Salaries payable will be debited for $500.

On December 28, I. Greasy Catering Company completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Accounts receivable for $600.

For the current year, Bubbles Office Supply had earned $600 of interest on investments. As of December 31, none of this interest had been received or recorded. Demonstrate the required half of the adjusting entry by choosing the correct statement below.

Debit Interest receivable for $600.

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?

Debit Salaries expense for $500.

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate what the correct adjusting entry should include by choosing the correct statement below.

Debit Unearned revenues for $400.

Chimney Sweeps provided chimney cleaning services to several clients during the month of February. Chimney's customers have not yet been billed. Chimney's customers owe $2,000 to Chimney. How will Chimney Sweeps record this transaction?

Debit accounts receivable and credit services revenue

At year-end, ABC Company is beginning its closing process. Use the following account balances to demonstrate the closing of its revenue accounts. (Check all that apply.)

Debit to Consulting Revenue for $12,000. Debit Service Fees for $15,000. A credit to Income Summary for $27,000.

Sheldon Company had $500 for one day of accrued salaries on December 31 of the prior year. On January 4 of the current year, total salaries for the five-day week are paid. The journal entry to record the payment of salaries on January 4 includes:

Debit to Salaries Payable for $500; Debit to Salaries Expense for $2,000

Able Company owes interest on a note for a loan. The note is dated December 1 and is due on February 1. On December 31, interest expense should be accrued for the following period:

December 1 to December 31

Which of the following statements describes the expense recognition (matching) principle? (Check all that apply.)

Expenses should be matched in the same accounting period as the revenues that are recognized as a result of those expenses. Matching of expenses with revenues is a major part of the adjusting process.

Recall the order in which financial statements are prepared.

Income statement, statement of retained earnings, balance sheet, statement of cash flows

Define the Income Summary account.

It is a temporary account used during the closing process to summarize revenues and expenses.

What defines a fiscal year for a business?

It is any period which consists of 12 consecutive months.

Define the Salaries payable account by selecting the appropriate statement below.

It reports amounts owed to employees and is a liability.

Describe the effect of the adjusting entry to show the earned amount of a previously recorded unearned revenue on the income statement and on the balance sheet by choosing the correct statements below. (Check all that apply.)

Net income is increased. A revenue account is increased. A liability (unearned revenue) will be reduced. Total liabilities are reduced.

Which of the lists below contains only permanent accounts?

Retained Earnings; Accounts Payable; Accumulated Depreciation

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Service revenue would be credited for $700. Unearned revenue would be debited for $700.

Determine which of the following transactions may require adjustments. (Check all that apply.)

Six months of rent were paid in advance. a 24-month insurance policy was prepaid Equipment was purchased in the middle of the year. An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. Supplies were purchased at the beginning of the year, but not all were used.

Which statements below are true regarding permanent and temporary accounts? (Check all that apply.)

Temporary accounts are reported on the income statement. Retained Earnings is a permanent account, but Dividends is a temporary account. Permanent accounts will appear on a post-closing trial balance. Permanent accounts are reported on the balance sheet. Temporary accounts have a balance for one period only.

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.)

The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted. The adjusted trial balance generally has more accounts listed than the unadjusted trial balance. The adjusted trial balance is used to prepare financial statements.

Explain the difference between the unadjusted and the adjusted trial balance.

The adjusted trial balance is prepared after adjusting entries have been recorded and posted.

Identify which group of accounts may require adjustments at the end of the accounting period.

Unearned revenue; Supplies; Prepaid rent

Explain what unearned revenues are by choosing the correct statement below.

Unearned revenues refer to cash received in advance of providing a service or product.

Which of the following lists contains only temporary accounts?

Wages Expense; Income Summary; Dividends

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense

An adjusted trial balance is:

a list of accounts and balances after adjusting entries have been recorded and posted

Explain a contra account by filling in the following blanks. A contra account is an account that is linked with another (report/account/statement). It has a(n) (similar/opposite) balance and is (added/subtracted) to/from the other account's balance.

account opposite subtracted

Cash basis accounting is defined as:

an accounting system which recognizes revenues when cash is received and records expenses when cash is paid

Illustrate your understanding of how to use the adjusted trial balance to prepare the balance sheet by completing the following sentence. In order to prepare a balance sheet using the account balances on an adjusted trial balance, all of the (expenses/assets) and their debit balances are transferred to the balance sheet as well as all of the (liabilities/revenues) and their (debit/credit) balances.

assets liabilities credit

The journal entry to close all of a company's expense accounts would include a (debit/credit) to each of the expense accounts and a corresponding (debit/credit) to the Income (statement/summary) account.

credit debit summary

Review and complete the following statement regarding the Income Summary account. The Income Summary account is (debited/credited) for the sum of all revenue accounts and is (debited/credited) for the sum of all expense accounts and its balance will be transferred to the (Retained Earnings/Cash) account.

credited debited retained earnings

The Fish Aquarium obtained funds from a bank and owes interest on a note at the end of the month. The required adjusting journal entry will

debit interest expense and credit interest payable

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a: (Check all that apply.)

debit to Insurance expense for $400. credit to Prepaid insurance for $400.

The closing process takes place at the (end/beginning) of an accounting period, after the (adjusted/unadjusted) trial balance is prepared and (after/before) the financial statements are prepared.

end adjusted after

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest (expense/payable/receivable) account and (debit/credit) the Interest (expense/payable/receivable) account.

expense credit payable

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries (expense/payable) account and (debit/credit) the Salaries (expense/payable/unearned) account.

expense credit payable

The expense recognition (matching) principle aims to record (expenses/assets/liabilities) in the same accounting period as the (expenses/revenues/assets) that are earned as a result of those costs. This principle is a major part of the (timing/adjusting/estimating) process.

expenses revenues adjusting

Not recording an accrued expense will have the following effect on the financial statements:

expenses on the income statement will be understated. liabilities on the balance sheet will be understated.

A period consisting of 12 consecutive months or 52 weeks is called a year.

fiscal

List the order in which financial statements are prepared.

income statement of retained earings balance sheet statement of cash flows

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the (Unearned revenue/Accounts receivable/Cash/Interest receivable) account and (debit/credit) the (Cash/Accounts receivable/Interest revenue/Interest receivable) account.

interest receivable credit interest revenue

Illustrate your understanding of how to use the adjusted trial balance to prepare an income statement by completing the following sentence. In order to prepare an income statement using the account balances on an adjusted trial balance, all of the (revenues/liabilities) and their credit balances are transferred to the income statement as well as all of the (expenses/assets) and their (debit/credit) balances.

revenues expenses debit

The revenue recognition principle states that revenue:

should be recorded when goods or services are provided to customers at an amount expected to be received

Complete the following statement. The purpose of the closing process is to reset (temporary/permanent) account balances to zero and to transfer the changes in all of these accounts to the Retained, (Earnings/Summary/Withdrawal) account.

temporary earnings

Closing means to transfer account balances from (asset/liability/permanent/temporary) accounts so that they will start with a (contra/larger/zero) balance at the beginning of the next period.

temporary zero

If an adjusting entry for unearned revenue is not recorded, what is the effect on the financial statements?

the revenues on the income statement will be understated.

A business has a $10,000 loan from a bank at 8% annual interest. Calculate the amount of interest to accrue if the loan has been outstanding for 45 days. Use a 360 day year.

100

On December 1, a company pays $3,600 for a 36-month insurance policy. After one month, accrual accounting requires $ (100/3,600) of insurance expense be reported on the income statement ending December 31. However, if cash basis accounting is used, $ (100/3,600) of insurance expense would be reported at the time of purchase.

100 3600

The value of information is often linked to its timeliness. Useful information must reach decision makers frequently and promptly. Businesses report financial information at regular intervals to ensure timeliness of data.

12 december

$21,000 of equipment is purchased on December 1. It is estimated that it will have a life of 5 years and zero salvage value. Calculate depreciation expense as of December 31 of the first year using the straight-line method.

350

Which of the statements below describe(s) a permanent account? (Check all that apply.)

A permanent account's balance is carried forward to the next accounting period. A permanent account is reported on the balance sheet.

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

Which of the statements below describe(s) a temporary account? (Check all that apply.)

A temporary account is closed at the end of an accounting period. A temporary account has a balance for only one period.

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

A temporary account will not appear on a post-closing trial balance.

Which of the following statements about the Accumulated depreciation account is (are) correct? (Check all that apply.)

Accumulated depreciation is a contra account. The Accumulated depreciation account allows the original cost of the asset to remain in the plant asset account. Accumulated depreciation accumulates the total depreciation taken on an asset since its purchase. Accumulated depreciation is subtracted from its plant asset on the balance sheet.

When does the closing process take place?

At the end of an accounting period

At the end of the previous year, a customer owed Days Company $400. On February 1 of the current year, the customer paid $600 total, which included the $400 owed plus $200 owed through February 1st. The journal entry on January 31 is? (Check all that apply.)

Cash will be debited for $600. Service revenue would be credited for $200. Accounts receivable will be credited for $400.

Choose the statement below that explains what "closing" means.

Closing means to bring an account balance to zero.

Select the statement below that explains how to use the Income Summary account.

The Income Summary account is used during the closing process to facilitate the closing of revenue and expense accounts.

What is the purpose of the Accumulated Depreciation account?

The account allows both the original cost of plant assets and the total depreciation taken to be shown simultaneously.

Which of the following describes accrued revenue? (Check all that apply)

The adjustment causes an increase in an asset account and an increase in a revenue account. They refer to earnings which have been earned but not yet billed. Accounts receivable is usually increased when accruing revenues. They refer to revenues that are earned in a period, but have not been received and are unrecorded.

Which of the following refers to the preparation of an adjusted trial balance? (Check all that apply.)

The debit and credit column totals must balance. An adjusted trial balance has one debit column and one credit column. New accounts may need to be added because of the adjusting process. Accounts are generally listed in the same order as listed in the chart of accounts. An adjusted trial balance is prepared after adjustments have been posted.

Review the following statements and determine which is (are) correct regarding an adjusted trial balance and how it is used In preparing financial statements. (Check all that apply.)

The ending Retained Earnings account balance on the balance sheet is transferred from the statement of retained earnings. The adjusted trial balance includes all accounts and balances appearing in financial statements. Financial statements are prepared more easily using the adjusted trial balance than with the general ledger. The income statement is the first financial statement prepared after preparing the adjusted trial balance.

Describe the final step in the adjusting process.

The final step is to create an adjusting journal entry to get from step 1 to step 2.

Define what the book value of an asset is by choosing the correct statement(s) below. (Check all that apply.)

The formula is Cost less Accumulated depreciation. It is the original cost of an asset minus its accumulated depreciation. it is sometimes referred to as the net amount of an asset.

What is the date primarily used in adjusting entries?

The last day of the period

Which of the following is (are) true regarding timeliness and the importance of periodic reporting? (Check all that apply.)

The value of information is often linked to its timeliness. Useful information must reach decision makers frequently and promptly. Businesses report financial information at regular intervals to ensure timeliness of data.

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

They are also called deferred revenues. They are reported on a balance sheet. They refer to cash received in advance of performing a service or product. They are a liability.

Accrual basis accounting is defined as: (Check all that apply.)

an accounting system that uses the matching principle to determine when to recognize revenues and expenses. an accounting system which is consistent with generally accepted accounting principles. an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred.

$200 of supplies were purchased at the beginning of the period and recorded as an asset. During the period, $90 of supplies were used. The adjustment to show the supplies used up would cause (assets/liabilities/expenses) to be reduced and (expenses/liabilities/revenues) to be increased, so net income would decline.

assets expenses

StoryBook Company provided services to several customers during the month of December. These services have not yet been paid by the customers. StoryBook should record the following adjusting entry at the end of December:

debit accounts receivable credit services revenue

Demonstrate your knowledge of a depreciation adjusting entry by completing the following sentence. A depreciation adjustment would include a debit to (depreciation expense/accumulated depreciation/building) and (debit/credit) to (depreciation expense/accumulated depreciation/building).

depreciation expense credit accumulated depreciation

Place the steps in the adjusting process in the correct order in which they would be performed.

determine what the current account balance is record and adjusting entry determine what the current account balance should be or determine what the current account balance is determine what the current account balance should be record and adjusting entry

Which of the following could be a logical or realistic accounting period for a business that is creating financial statements? (Check all that apply.)

one-month six-month one-year

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation.

prepare an unadjusted trail balance journalize prepare an adjusted trail balance prepare finacial statements

Illustrate your understanding of how to use the adjusted trial balance to prepare a statement of retained earnings by completing the following sentence. In order to prepare the statement of retained earnings, the balance of the (Retained earnings / Cash) account balance as well as any debit balance in the (Dividends / Supplies) account is transferred from the adjusted trial balance and is used along with the reported net income (loss) from the Income statement.

retained earnings dividends

Accrual basis accounting recognizes (equity/revenues/expenses) when earned and records (revenues/expenses/liabilities) when (incurred/paid) in order to adhere to the matching principle.

revenue expenses incurred

Not recording an adjusting entry for accrued revenue will result in:

revenue being understated accounts receivable being understated

Explain your understanding of the closing process by choosing the correct statements below. (Check all that apply.)

the closing process resets the balances in temporary accounts to zero. the closing process helps to summarize a period's revenues and expenses.